Techno Lite, Inc. v. Emcod, LLC

• Decision Date: 21 January 2020
• Docket Number: c/w B289486,B284989
• Citation: 257 Cal.Rptr.3d 643,44 Cal.App.5th 462
• Court: California Court of Appeals Court of Appeals
• Parties: TECHNO LITE, INC., Plaintiff, Cross-Defendant and Respondent, v. EMCOD, LLC, et al., Defendants, Cross-Complainants and Appellants.

44 Cal.App.5th 462

257 Cal.Rptr.3d 643

TECHNO LITE, INC., Plaintiff, Cross-Defendant and Respondent,

v.EMCOD, LLC, et al., Defendants, Cross-Complainants and Appellants.

B284989

c/w B289486

Court of Appeal, Second District, Division 4, California.

Filed January 21, 2020

Certified for Partial Publication.^*

Schwartz & Asiedu and Kwasi A. Asiedu ; Law Offices of Stephen K. Lubega and Stephen K. Lubega for Defendants, Cross-complainants and Appellants.

Reed & Reed and Darren G. Reed for Plaintiff, Cross-defendant and Respondent.

MANELLA, P. J.

INTRODUCTION

Appellants Scott Drucker and Arik Nirenberg worked for respondent Techno Lite, a company engaged in selling lighting transformers that was previously owned by Neil Olshan and respondents Stefan Poenitz and David Tour. While Drucker and Nirenberg worked for Techno Lite, they also ran their own company, appellant Emcod, LLC. Though Emcod also sold transformers, Techno Lite consented to Drucker’s and Nirenberg’s operating Emcod while working for Techno Lite, based on their promise that they would run Emcod on their own time, and that Emcod would not compete with Techno Lite.

In 2013, after Olshan died, Poenitz and Tour offered to gift Olshan’s shares in Techno Lite to Drucker. Drucker refused the shares and instead offered to purchase Techno Lite from Poenitz and Tour. Although the parties negotiated, no purchase was consummated, and Drucker and Nirenberg resigned from Techno Lite in mid-December 2013. Shortly thereafter, Techno Lite accused Drucker, Nirenberg, and appellant Joseph Frole -- an outside salesperson who sold products on behalf of both Techno Lite and Emcod -- of stealing its customers and misappropriating its trade secrets.

On January 29, 2014, Techno Lite filed a complaint against Emcod, Drucker, Nirenberg, and Frole for breach of fiduciary duty, misappropriation of trade secrets, interference with contractual relationships, intentional and negligent interference with prospective economic advantage, conversion, injunctive relief, and constructive trust. Emcod, Drucker, and Nirenberg, in turn, cross-complained against Techno Lite, its owners, its operations manager respondent Rodney Davis, and several others for intentional interference with contract, intentional and negligent interference with prospective economic relations, violation of the California unfair competition law, violation of the Cartwright Act, violation of the unfair business practices act, defamation, and injunctive relief. Techno Lite subsequently filed two amended complaints, adding causes of action for fraud and unfair business practices.

Appellants secured summary adjudication of Techno Lite’s misappropriation of trade secrets claim before the Honorable Russell S. Kussman. The parties thereafter proceeded to a court trial on the remaining causes of action before the Honorable Rick Brown. After the close of evidence, as part of appellants’ closing argument, Emcod, Drucker, and Nirenberg requested leave to amend their cross-complaint to conform to proof to add a cause of action for breach of contract for Poenitz’s and Tour’s failure to sell Techno Lite to Drucker and Nirenberg. The court denied the request. Following the conclusion of the trial and a subsequent hearing, the court found Drucker, Nirenberg, and Frole liable for interfering with Techno Lite’s prospective economic advantage, and also found Drucker, Nirenberg, and Emcod liable for fraud and unfair competition.¹ The court dismissed appellants’ cross-complaint. In a later proceeding, the Honorable Virginia Keeny denied appellants’ motion for attorneys’ fees for defeating Techno Lite’s misappropriation of trade secrets claim.

Appellants now argue the courts below erred by: (a) finding Drucker, Nirenberg, and Emcod liable for fraud; (b) finding appellants liable for interfering with respondent Techno Lite’s prospective economic advantage; (c) denying Emcod, Drucker, and Nirenberg’s motion for leave to amend their cross-complaint to conform to proof; and (d) denying appellants’ motion for attorneys’ fees after appellants secured summary adjudication of Techno Lite’s claim for misappropriation of trade secrets. In the published portion of the opinion, we reject appellants’ argument that they could not be found liable for fraud because their promise not to compete against their current employer was void under Business and Professions Code section 16600. In the unpublished portion of the opinion, we reject their remaining contentions and affirm.

STATEMENT OF RELEVANT FACTS

A. Poenitz and Tour Purchase Techno Lite

In 2003, Olshan, Poenitz, and Tour purchased Techno Lite from Shafrir Romano. Both Drucker and Nirenberg were working for Techno Lite, and they continued on with the new ownership.

Originally, Romano was kept on to run Techno Lite, but in 2005, following a dispute with the new owners, Romano left the company and Drucker was tasked with running Techno Lite. Following his departure, Romano interfered with Techno Lite’s relationship with its suppliers, nearly causing Techno Lite to go out of business.

B. Drucker and Nirenberg Found Emcod and Promise Emcod Will Not Compete with Techno Lite

In 2006, with Techno Lite in dire financial straits, Drucker and Nirenberg founded Emcod, LLC.² Drucker testified they did so because they "were in fear of Techno Lite closing its doors." They "started Emcod as a backup to basically have something to fall on to if Techno Lite was to close its doors." Drucker and Nirenberg were each 50 percent owners of Emcod, and its only employees.

When Olshan, Tour, and Poenitz discovered Emcod, the parties had "many discussions," but ultimately they decided to permit Drucker and Nirenberg to operate Emcod while still working for Techno Lite, because Drucker and Nirenberg promised them Emcod would not compete with Techno Lite. Drucker testified he told Techno Lite’s owners that Emcod would not compete with them in the lighting industry. Tour testified that Nirenberg promised him Emcod’s business "will have nothing to do with any of your parts. We’re not going into competition with you." Tour further testified that he and Techno Lite’s other owners were assured that Emcod’s operations "weren’t going to affect [Techno Lite’s] business in any way, shape, or form." Poenitz testified that "Arik [Nirenberg] and/or Scott [Drucker]" told him "that Emcod made custom transformers ... that had nothing to do with [Techno Lite’s] market or [its] customer base."

In 2009, Frole began selling products for both Techno Lite and Emcod as an outside salesperson; he was paid by commission on products sold.

C. Emcod Begins Competing with Techno Lite; Appellants Conceal Their Actions

In 2012, Emcod started selling to Techno Lite customers the same products Techno Lite was selling. Specifically, Drucker admitted that Emcod sold to certain Techno Lite customers such as Diode L.E.D., G.M. Lighting, Five Star Wholesale, Ark Lighting, and Village View Lighting the same products Techno Lite sold. Drucker claimed Emcod did this because Techno Lite did not have the resources to fill customer demand, so Emcod stepped in to "maintain and keep the account." Drucker claimed Emcod was able to sell to these customers when Techno Lite could not, due to Drucker’s personal connections. Drucker did not tell Techno Lite’s owners that Emcod was selling to their customers, and Emcod kept the profits from these sales.

In 2013, long before Drucker offered to purchase Techno Lite, several e-mails were sent to Techno Lite’s customers asking them to replace Techno Lite with Emcod. For example, on January 7, 2013, Frole wrote an e-mail to L.E.D. Lighting Wholesale, a customer Drucker admitted was "the type of lighting wholesaler that Techno[ ]Lite could sell to," stating: " ‘All of our accounts are going to be changed to the new name, Emcod. Consequently, we want to clean up all the old invoices.’ " After Frole forwarded this e-mail to Drucker, Drucker responded with, " ‘Thanks, Joe.’ "

On April 25, 2013, Frole forwarded to Drucker an e-mail he had sent to Light Bulbs Unlimited, telling the company representative where a list of Emcod’s products could be found. In response, Drucker stated, " ‘We have to be very careful who we contact until we leave here. I don’t trust Joe [the person to whom Frole had sent the e-mail]. He is a dirtbag from dealing with him in the past. Please talk with me before contacting any customers about Emcod. We can only go after accounts we trust. We can’t risk Magnitude [Shafrir Romano’s company which also sold transformers], Shafrir calling David [Tour] or Stefan [Poenitz] saying we are taking over with Emcod.’ "

On October 4, 2013, Frole sent an e-mail to Village View Lighting (a Techno Lite customer) asking, "How much of a problem would it be for you to change the purchase order that you have in your computer from TechnoMagnet to Emcod, same address?³ Emcod is a company that Scott [Drucker] and Arik [Nirenberg], the engineer, have had for the last seven years making the same products as Techno Lite. They are in the process of talking to the owners of TechnoMagnet to buy them out. They have been talking about going out on their own for quite a while and decided to do it now."

D. Drucker Offers to Buy Techno Lite; Negotiations Fail; Lawsuits Commence

After Olshan died, Poenitz and Tour decided to offer Olshan’s shares of Techno Lite to Drucker for free. Drucker declined their offer, and instead offered to purchase Techno Lite from Poenitz and Tour. Drucker testified the parties had agreed on terms, but when he arrived to sign the final contracts Poenitz and Tour asked for $100,000 more. Drucker countered Poenitz and Tour’s new offer by increasing his previous offer by $50,000. Poenitz and Tour rejected Drucker’s counteroffer, and Drucker and Nirenberg resigned from Techno Lite on December 13, 2013. Rodney Davis was brought in to replace Drucker as operations manager.

On January 29, 2014, Techno Lite sued appellants, alleging causes of...